Does loan amount or vested account balance dictate if spousal consent is needed for plan loan?

[Guest OscarD]

Is spousal consent required when the participant’s account is over the cash out limit, but the loan is less than the cash out limit? Example, the plan’s involuntary cash out limit is $5,000. The participant’s vested account in $11,000. Participant requests a loan for $4,000. Do you require spousal consent? I always thought that the “total accrued benefit” determined whether or not the loan was subject to consent… but, I’ve heard otherwise from other sources. Any thoughts or regulatory guidance?

In other words, how do you interpret the last sentence of the following reg?

1.401(a)-20 Q- 24. What are the rules under sections 401(a)(11) and 417 applicable to plan loans?

A- 24. (a) Consent rules. (1) A plan does not satisfy the survivor annuity requirements of sections 401(a)(11) and 417 unless the plan provides that, at the time the participant's accrued benefit is used as security for a loan, spousal consent to such use is obtained. Consent is required even if the accrued benefit is not the primary security for the loan. No spousal consent is necessary if, at the time the loan is secured, no consent would be required for a distribution under section 417(a)(2)(B). Spousal consent is not required if the plan or the participant is not subject to section 401(a)(11) at the time the accrued benefit is used as security, or if the total accrued benefit subject to the security is not in excess of the cash-out limit in effect under §1.411(a)-11©(3)(ii).

Thanks

Oscar

[Alf]

I depends on the account balance pledged as security for the loan. Generally, this will be the amount of the original loan.

[Guest tcv]

Unless it has been changed, the restriction has always been based on the total value of the account.

You cannot give a $4,000 loan on an $11,000 account without spousal consent any more than you can make a $4,000 distribution from a $11,000 account without spousal consent. For spousal consent purposes, a loan is considered the same as a distribution.